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In re M & S Grading, Inc.

Bankruptcy Appellate Panel for the Eighth Circuit
457 F.3d 898 (2006)


The CIT Group/Equipment Financing, Inc. (CIT) (creditor) leased equipment to Fehrs Nebraska Tractor & Equipment Co. (Fehrs). CIT had certificated the equipment and retained possession of the certificates of title. Before the lease expired, Fehrs sold the equipment to M & S Grading, Inc. (M&S Grading) (debtor). Fehrs then went out of business. Later, M&S Grading filed for bankruptcy and included the equipment as part of the bankruptcy estate. CIT sued M&S Grading to recover the equipment. The bankruptcy court relied on Uniform Commercial Code (UCC) § 2A-305(3), a section governing the sale of leased goods by an existing lessee. Under UCC § 2A-305(3), the bankruptcy court found that Fehrs did not have title to these certificated goods and, therefore, could not transfer title to M&S Grading. Thus, CIT still owned the equipment. M&S Grading appealed, arguing that an analogous sales section of the UCC did not require a buyer in the ordinary course to obtain a certificate of title to get title to certificated goods, and the lease section should be read the same way.

Rule of Law


Holding and Reasoning (Venters, J.)

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